The Role of Commercial Banks in Consumer Banking
Commercial banks provide a number of important products and services to consumers, businesses and other organizations. Most consumers are familiar with commercial banks but may not be fully aware of the extent of their role in the consumer economy. This article explores the role that commercial banks play for consumers and may help shed some light on their importance to us.
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Definition
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Commercial banks are banks that offer a variety of common banking products including deposit accounts (for example, checking, savings, money market, CDs) and make various kinds of loans. These typically include mortgage loans, personal and business loans, and credit cards. In contrast to investment banks, which typically focus on capital markets activities such as the underwriting of securities, commercial banks derive most of their revenue from the sale of loans and the acceptance of deposits.
Liability Products
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Commercial banks offer a variety of "liability products" to consumers. These products are known as "liability products" because they represent liabilities of the bank. Consumers generally know them as "deposit" products. Typically, liability products include checking and savings accounts, money market accounts and certificates of deposit (CDs). Bank liability products are useful to consumers since they provide a safe place to keep their funds and give them the opportunity to earn interest on cash that they may not immediately need. Liability products also give consumers access to cash via checks and ATMs, and except for most checking accounts, they allow consumers to earn interest on their deposits.
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Asset Products
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Asset products are so named because they represent assets of the bank. Consumers generally know them as "loan products." These include mortgages, car loans, personal installment loans and credit card loans. These products allow consumers to purchase, for example, homes, cars and merchandise which they otherwise could not immediately afford. Asset products earn interest for the bank which is paid by the borrower.
Services
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In addition to their deposit and loan products, commercial banks also supply a variety of services to consumers. Many banks offer safe deposit boxes, providing consumers with a secure place to store valuables such as jewelry, precious metals, securities and other important documents. Most banks also sell money orders, travelers checks, cashier's checks and U.S. Savings Bonds. Many also supply trust and estate services, both consulting on these matters and functioning as the trustee in the event of the death of one of their customers.
Convenience
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Commercial banks have endeavored to make banking more convenient for consumers in many ways. In recent years, they have introduced extended branch hours, including Saturdays, and have even opened mini branches in supermarkets so that people can bank where they shop. They have expanded their ATM networks and combined them with other banks, so that there are now thousands of places where their customers can obtain cash and make deposits 24 hours a day. Finally, they have introduced online banking systems so that consumers can obtain banking information and make transfers and payments from the convenience of their homes.
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